Sugar Prices, Labor Income, and Poverty in Brazil

Abstract

This paper assesses the impact that a potential liberalization of sugar regimes in OECD countries could have on household labor income and poverty in Brazil. The authors first estimate the extent of price transmission from world markets to 11 Brazilian states to capture the fact that some local markets may be relatively more isolated from changes in world prices. They then simultaneously estimate the impact that changes in domestic sugar prices have on regional wages and employment depending on worker characteristics. Finally, they measure the impact on household income of a 10 percent increase in world sugar prices. Results suggest that workers in the sugar sector and in sugar-producing regions have better employment opportunities and experience larger wage increases. More interestingly, households at the top of the income distribution experience larger income gains due to higher wages, whereas households at the bottom of the distribution experience larger income gains due to movements out of unemployment.